Total household expenditure on goods and services in an economy AD = C+I+G+(X-M)
Animal Spirits
Confidence or pessimism held by consumers and firms.
Consumer Confidence
Expectations about the future including interest rates, incomes and jobs.
Consumer Durables
Products that are not used up immediately when consumed and provide a flow of services over time eg washing machine
Consumer Spending/ Consumption
Household spending on goods and services. Consumption is 60% of the UK's AD
Disposable Income
Gross income less income tax and national insurance contributions plus welfare benefits. DY = Gross income - direct taxes
Household Income
The financial resources available to household to spend or save
Original Income
Income from jobs, private pensions, interest from savings
Gross Income
Original income + cash benefits
Post-tax Income
Disposable income - indirect taxes
Household Wealth
The monetary value of assets –including property, shares, savings, pension fund assets
Income
A flow of money to factors of production
Interest Rate
The cost of borrowing or the reward for saving expressed as a percentage
Negative Equity
When the value of an asset falls below the debt left to pay on that asset.
Pension Fund
Employees' pension benefits are invested in stocks, bonds and other assets to boost returns and ensure there are sufficient funds to retire
Personal Allowance
The amount of income you can earn before you start paying income tax.
Precautionary Saving
Saving due to fears of a loss of real income or rising unemployment.
Saving Ratio
The percentage of household disposable income that is saved rather than spent
Unsecured Credit
Credit not secured by another asset ie. credit cards
Wealth
Assets that generate income eg. savings held in commercial bank deposits, ownership of shares issued by PLCs and equity stakes in LTDs and real estate.
Wealth Effect
The supposed link between changes in wealth and household spending.
Access to Credit
The willingness and ability of financial institutions to lend funds to producers and consumers.
Business Confidence
Expectations about the future of the economy which influences firms' spending on capital
Gross Investment
Total investment = new investment + replacement investment.
Investment
Spending on capital goods
Investment Income
Interest, profits and dividends from assets owned and located overseas.
Keynesian Economics
The belief that the state can directly stimulate demand in a stagnating economy by funding public works, housing, schools, hospitals etc.
Net Investment
Total investment - replacement investment.
Replacement Investment
The purchase of capital goods by firms to replace existing, worn-out capital. It does not add to the total capital stock of an economy.
Fiscal Policy
Government policies regarding tax can be loose (lower taxes and increased spending) or tight (higher taxes and decreased spending)
Government Borrowing
The amount the government must borrow each year to finance their spending.
Government Debt
The total stock of unpaid debt issued by a government borrowed by issuing bonds or other securities.
Government Spending
Spending by government on education, health care and defence & other public services.
Trade Cycle
Fluctuations in economic activities especially in employment, output and income, prices, profits etc
Automatic Stabilisers
Automatic fiscal changes as the economy moves through the business cycle
Discretionary Fiscal Policy
The government actively making a change to spending or taxes to achieve macroeconomic objectives
Determinants of Investment
Interest rates, business confidence, profitability, productivity of capital, government policies, economic growth (Accelerator Effect)
Determinants of Consumption
-Income
-Inflation
-Interest rates
-Wealth effect
-Consumer confidence
-Demographics
Life-cycle Hypothesis
At different stages of a person's lifetime their consumption changes